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Canadian firms will be able to bid on new U.S. contracts worth tens of billions of dollars after an announcement today that is expected to ease Buy American restrictions.

It may also signal a step toward economic union within Canada.

The agreement is expected to ease a year-long dispute that closed the U.S. market to Canadian firms seeking access to contracts generated by the $800-billion economic stimulus package passed in Congress last year.

Canadian businesses will now be able to bid on construction and other contracts at both the federal and state level. The Ontario government estimates that provincial firms alone will have access to $73-billion in previously off-limits U.S. contracts.

But to get that access, Canadian provinces must open their own markets to outside governments, both foreign and domestic, seeking to bid on provincial and municipal contracts. In Ontario's case, $10-billion worth of work will be open to all comers.

The agreement will also unblock a major obstacle to a proposed trade agreement between Canada and the European Union.

The EU enjoys internal free trade, and wants access to provincial as well as national markets.

"It could be a triple win," said Robert Wolfe, a political scientist at Queen's University. The agreement would be "good for internal trade, good for U.S. trade, good for negotiations with the Europeans."

The federal Recovery and Investment Act's buy-American provisions were the biggest challenge to Canada-U.S. economic relations since the softwood lumber dispute. Both Canadian and U.S. firms howled when Congress imposed rules prohibiting foreign firms from bidding on stimulus contracts that sustained much of the U.S. economy in the darkest weeks of the recession.

Not only were Canadian firms shut out, but many U.S. firms with ties to Canadian suppliers also lost business.

After months of negotiations, sources report that the White House will declare that Canadian firms may bid on whatever contracts are still available under seven different programs within the Recovery and Investment Act.

Further, the administration will tell states and municipalities that Canadian firms may also bid on local contracts in the 37 states that have signed the World Trade Organization Agreement on Government Procurement.

In exchange, all 10 provinces have reportedly agreed to sign the WTO procurement agreement, which limits their ability to favour local businesses when awarding contracts.

Such non-tariff barriers have often made trade between provinces harder than trade between Canada and the United States.

Finance Minister Jim Flaherty, while refusing to confirm the details or timing of the announcement, told CTV yesterday that "assuming it works out," the agreement would be "a major announcement for the benefit of Canadian businesses, especially Canadian business close to the border with the United States."

There will be many exemptions and caveats. The Ontario government, for example, has won exemptions for transportation and energy contracts as the province attempts to kick-start a domestic alternative-energy industry.

And education-related contracts are protected on both sides of the border.

Nonetheless, the accord reflects a new commitment by U.S. President Barack Obama, signalled in his State of the Union address, to increase greatly the administration's emphasis on trade.

The President's National Export Initiative seeks to expand trade opportunities, to help finance small- and medium-sized businesses seeking to expand exports, and to enforce international trade laws strictly.

"The United States is committed to a rules-based trading system where the American people - and the Congress - can feel confident that when we sign an agreement that gives foreign countries the privilege of free and fair access to our domestic market, we are treated the same," U.S. Commerce Secretary Gary Locke told a news conference yesterday.

Such a commitment would hardly jive with protectionist measures shutting Canadian firms out of procurement contracts.

The hope - although it is too early to say whether it will be fulfilled - is that the U.S. initiative will prevent Buy American provisions from clogging future legislation, such as a jobs bill wending its way through Congress.

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Buy American basics

What is Buy American?

When Congress passed its mammoth economic stimulus package a year ago, it included a provision prohibiting foreign firms from receiving stimulus-related contracts.

How much does it cost Canadians?

About $800-billion of contracts was off-limits to Canadian firms, and even to U.S. firms that used Canadian suppliers. While all foreign companies complained, Canadians were especially upset, since the country's manufacturing sector is intimately tied to the United States.

What are the changes that will be announced?

Although many of the contracts have already been awarded, Canadian firms will be able to bid on much of what's left. In return, U.S. firms can bid on provincial and municipal contracts in this country.